Boosting the housing market has been central to the coalition government’s efforts to stimulate economic recovery. As such, the housing market now occupies a similar position in the post-crisis growth model that it occupied in the pre-crisis growth model. Rising property values are compensating for stagnating earnings in fuelling consumer spending, partly because some households are able to withdraw their equity gains in order consume more, and partly because rising prices makes home-owners in general feel richer.
Of course, in a spluttering economy, it is difficult to maintain house price growth at a pace that induces consumer confidence. (This is, in part, precisely because earnings have been so flat – they remain well below their pre-crisis level in real terms.) This helps to explain the continuation of ultra-low interest rates, with the Bank of England keeping rates at rock bottom despite the unemployment target at the heart of Governor Mark Carney’s supposed ‘forward guidance’ having been reached at least two years ahead of schedule.
This dilemma is also, even more directly, the reasoning behind the coalition’s ‘Help to Buy’ scheme, introduced in 2013. The scheme is cloaked in progressive language, as a way of extending home-ownership to a wider group of people. But this position is hard to sustain when the mortgage-guarantee element of the scheme applies to any home valued under £600,000 – more than triple the average house price in the UK. In its first year, ‘Help to Buy’ was used in around 90,000 home purchases. We can see from HMRC property transaction statistics that this represents around 7-10 per cent of residential property transactions (it is hard to be precise because the reporting periods do not match up). This would be an incredible act of interventionism for any government – let alone one committed to reducing public spending to 1930s levels.
There are many reasons not to build a growth model upon the housing market, not least because it makes growth too dependent on household debt. In the case of Britain, it also means severe regional inequalities are reproduced.
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Image: Phillippa Willitts